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Last week, I suggested that Mexico's oil production was too uncertain to rely on for America's energy independence. Today, I'll take a closer look at what is going wrong south of the border, and highlight what investors need to keep in mind when it comes to investing in Mexico's energy future.

Basic facts and statsPetroleos Mexicanos, or Pemex, has a monopoly over the oil industry in Mexico. As of 1938, the state-owned company is the country's sole producer, per the Mexican Constitution. At approximately 2.5 million barrels per day, the country is the world's eighth largest crude oil producer. Its reserves are the 12th largest in the world, and the Mexican government relies on its oil industry for 30% of its fiscal revenue.

The U.S. also relies heavily on Mexico's oil; the country accounts for 8% of all U.S. crude oil and petroleum product imports.

Since 2004, Mexico's oil production has declined 25%, from 3.4 million bpd to the aforementioned rate of 2.5 million bpd. Industry experts anticipate that barring significant changes to Mexico's energy policy, the production decline will continue over the course of this decade and that the country will become a net oil importer by 2020.

A closer lookIf Mexico's production continues to decline, it won't be for lack of opportunity. Geology, after all, does not pay mind to political borders, and the same oil-rich fields that U.S. producers are exploiting in Texas and the Gulf of Mexico continue right under the neighboring Mexican soil and waters. No, Mexico's real problem is that Pemex is ill-equipped to develop these lucrative resources on its own.

A perfect example of this comes with Pemex's recent discovery of oil in the Gulf of Mexico. Twenty-four miles south of the U.S.-Mexico maritime border, the company drilled a well called Trion I in over 8,000 feet of water and hit black gold. The head of Pemex's exploration and production department said that while it normally takes seven years to bring a deposit like this to production, the company would try to do it in five.

Good luck. Pemex had already drilled 19 exploratory wells in the region before finally hitting oil this time around. The company is not known for its efficiencies, and shaving two years off an industry standard timetable seems absurdly ambitious at this point, if not potentially reckless.

After all, this is the same company that spent $9 billion developing the Chicontepec field in hopes of producing 300,000 barrels per day. Ignoring industry best practices and drilling hastily and haphazardly, today Chicontepec is only producing at a rate of 65,000 bpd.

If Pemex gets its act together, the Trion I well is in a region that could ultimately boost Mexican production to levels higher than its 2004 peak. The Mexican side of the Perdido formation is estimated to contain 250 million-400 million barrels of light crude. Royal Dutch Shell (NYS: RDS.B) operates a rig on the U.S. side of the field that produces 100,000 barrels of oil a day, so the potential for success is there.

Inside traitorPemex's problems extend far deeper than an inability to compete with the operational efficiency of oil majors. Oil theft is estimated to erase more than $1 billion in profit every year. In 2010, thieves stole 2.16 million barrels of oil. In 2011, that number climbed to 3.35 million barrels. So far in 2012, theft has increased 18% over last year.

Much of the theft is the result of criminal gangs illegally tapping pipelines to steal crude or condensate. Through the first six months of the year, Pemex detected almost 800 illegal taps. However, there is also a significant amount of crude that is stolen from refineries or transfer stations with the help of Pemex employees. It is hard to stop theft when your own employees are aiding and abetting the thieves.

David Shields, a Mexican energy analyst, put it best: "Reforming the petroleum industry doesn't only imply autonomy and investments, but in assuring legality, ethics and morality in all the country's petroleum activities."

Investor attentionThough Mexico's eergy picture is a mess right now, there is way too much potential there to completely write it off. In the near term, investors should keep an eye on oil field service companies like Schlumberger (NYS: SLB) and McDermott International (NYS: MDR) , two outfits finding success in Mexico right now.

In the long term, savvy investors will keep an eye on Mexican politics. Real change is likely out of the question for the next three years, as the Mexican Congress goes through reelections, but given the dependency the Mexican government has on oil revenue, it will happen. And if the changes allow private companies to enter into risk-sharing production agreements, expect to see oil majors jump at the change to tap Mexico's reserves.